PM’s Office to address complaints by e-commerce companies

A meeting of top officials was held at the PMO on Thursday to discuss a range of issues including taxation, marketplace curbs and the offline-online conflict.Deepshikha Sikarwar | ET Bureau | October 26, 2016, 07:51 IST

The Prime Minister’s Office is looking to address complaints by ecommerce companies that the current rules are too restrictive pending the drafting of a longer-term plan for the key job generating sector by a NITI Aayog committee.

A meeting of top officials was held at the PMO on Thursday to discuss a range of issues including taxation, marketplace curbs and the offline-online conflict.

“There are a number of issues confronting the sector, including foreign investment, taxation,” said a government official who attended the meeting. “The idea was to take a stock.” The government has already set up a committee under NITI Aayog chief executive officer Amitabh Kant to review the ecommerce policy and issues faced by companies.

The PMO was drawn into the matter after ecommerce players approached several departments with multiple issues and in the absence of a single nodal ministry.

Bricks and mortar

The Department of Industrial Policy and Promotion (DIPP) had issued a press note in March laying down a new foreign direct investment (FDI) framework for ecommerce aimed at creating a level playing field vis-à-vis brick and mortar businesses. It allows 100% FDI in the marketplace model through the automatic route but such entities are not allowed to influence prices by offering discounts. Moreover, a single vendor cannot account for more than 25% of sales on an online marketplace.

On the other hand, offline retailers met finance minister Arun Jaitley last week to press their case and raise the issue of unfair competition from online players through what they described as predatory discounting.

Taxation has emerged as a major irritant for the ecommerce sector along with restrictions imposed by state governments.

States like Gujarat have imposed a separate entry tax on goods sold on online portals while others want to impose value added tax on top of the Centre’s service tax.

The ecommerce companies say they only facilitate sales and are not sellers themselves so they should only face service tax. States such as Uttar Pradesh even require consumers to file declarations with the state VAT department for goods above Rs 5,000.

The NITI Aayog committee is expected to submit its report in a month’s time, spelling out a clear framework and bringing about predictability in the overall sectoral policy. Morgan Stanley estimates India’s ecommerce market will swell to $119 billion by 2020.

The government sees ecommerce as having a huge potential for job creation by providing market access to small entrepreneurs and businesses that would find setting up physical retail establishments too expensive.